Budget has a welcome focus on the rural economy

 The wellbeing of the people of this country is closely linked to the rural areas which have approximately 75% of the population. The rural economy encompasses all of our agriculture, and related activities, and fishing, and a raft of various rural-based SME industries – Pic by Shehan Gunasekara

Good economics is to give priority to developing what we have now. Bad economics is to focus on dreams and to ignore what we have. It is that old saying that the bird in the hand is worth two in the bush.

Dreams are good. A lot of great innovation has come from dreams. The challenge is to get the right balance between developing what we have and pursuing the dreams.

Rural economy

The wellbeing of the people of this country is closely linked to the rural areas which have approximately 75% of the population. The rural economy encompasses all of our agriculture, and related activities, and fishing, and a raft of various rural-based SME industries.

The rural economy also includes the providers of services like education, health, and the administration infrastructure. They all live in the rural economy and are very much a part of it. If any segment of this economy is developed, the benefits will seep through to most parts of this economy.

The booming construction industry is desperately short of workers. They are willing to pay the level of wages required and to bring in foreign labour because the people in the rural areas will not come and work in urban industry. The Chinese are bringing in labour for their projects for the same reason. No takers from the rural areas.

The rural philosophy

What they are saying in effect is—“We are born here, our home is here, the society we want to live in is here. We do not wish to go and work as labour in urban industry. Please develop where we live and want to live. If you do not do this, we will vote for the party that will.”

Time to change the focus

All the excitement, with seminars, conferences, ministers given special responsibilities, etc., is about Free Trade Agreements, creating a trading hub (like Venice a few centuries ago!), seeking great benefits from the new Silk Road and the magic of the Port City.

All good aspirations, but none of this is going to make any perceptible impact on the economy within the next two or three years. And none of this razzmatazz will impress those in our rural economy as they do not see the link of how it will benefit them.

Before we come to believe that China is our Messiah, we should remember that China’s strategy is to secure the route oil has to traverse to get to China. They first build huggy-kissy relationships with countries on the route (now christened the new Silk Route) and then get two feet firmly entrenched in the ground in all the countries on the oil route, with unsolicited projects and soft loans. 

We are not the only favoured son of China. Every country on the new Silk Route is also a favoured son. There is absolutely nothing wrong with this, as China must protect its interests. If it does this whilst pouring in some development investment it is a win-win situation for both sides.

Democracy

The great thing about democracy is that it’s the vote that decides who will rule. If the Government persists in largely ignoring the rural economy, when it comes to voting time the rural economy will vote against it.

Criticising the Rajapaksas has run its course. That will no longer win elections. Good to remember why Hilary Clinton failed and why Theresa May lost her majority in Parliament. They both focused on attacking their opponent. They failed to spell out what good things they would do for the country.

Green shoots

Welcome green shoots of a strategy with some focus on the development of the rural economy was seen in the former Finance Minister’s Budget. Some snippets from his Budget document: 

“The medium term strategy of the Government is… development of rural economies, ensuring ownership of land to rural and estate sector working class.”

“Small and Medium Enterprises (SMEs) is a giant pillar in our economy with more emphasis on industry. We will concentrate on developing the sector with assistance including financial, marketing and other related facilities to nurture foster and develop such enterprises.”

“In our endeavour to upgrade the livelihood of the farming community, improved technology-based measures will be introduced.”

“I wish to begin presenting the Budget proposals with respect to the agriculture sector as a priority, given its importance to our economy, our society and our way of life.”

“Our Government is determined to support agriculture to transform itself from the low yielding, low income, few crop dependent, subsistence agriculture to commercial agriculture, raising income levels of farmers and developing small scale producers into big exporters.”

Funds to pursue this strategy

All development requires capital. It is the magic ingredient that sets in motion growth and development. The problem is that capital is the one thing that those in economic activities in the rural areas do not have and is the scarce resource that inhibits growth.

The former Finance Minister Ravi Karunanayake understands good economics and the need for capital. He also understands that the rural economy will have to borrow to get the funds and he also appreciates that at the prevailing high rates of interest it will be difficult to create viable businesses after paying these high rates of interest.

To address this problem he has provided for many innovative schemes of providing an interest subsidy of 50% of the interest.

Interest subsidy schemes

“I propose to provide a 50% interest subsidy to farmers, farmer organisations and agro processing establishments for upgrading the sector through infusion of productivity enhancing technologies and practices. I also wish to extend this scheme to the paddy sector as well… and also those medium scale rice millers who will invest in silo storages.”

He has provided Rs. 400 million for these schemes and to help farmers to improve mechanisation a loan scheme where 75% of the interest will be borne by the Government.

The fishery industry

This is an important component of the rural economy. Substantial funds have been allocated for a number of projects. Rs. 500 million to promote aquaculture industry zones. A cold room with a capacity of 1,000 tons, Rs. 100 million. He has provided Rs. 1,350 million to uplift the infrastructure of fishery harbours and Rs. 1,200 million to improve fishery villages in 10 coastal districts.

The SME sector

The key problem is the usual one of no finance and no collateral to get bank finance. To address this problem Rs. 500 million has been provided for a credit guarantee scheme and a 50% interest subsidy scheme for which Rs. 750 million has been provided.

The challenge is implementation

When he was Finance Minister, Karunanayake appointed a committee to facilitate implementation of the Budget proposals. A committee has no power to implement (that has to be done by the relevant ministry) but it can perform the very useful role of defining the processes that will speed implementation. 

There was good progress on this front. The lack of a monitoring system was identified as a major drawback. This was addressed very quickly. Three things that retarded progress were identified. No trained project management skills, the difficulty of following the good procurement guidelines and a fear to make decisions.

There is an urgent need to create a pool of people with project management skills and to make them available to each Ministry that had major projects. The procurement function should be outsourced to the National Procurement Agency. They should do the tenders for every ministry. This is the area where there is greatest reluctance and fear to make decisions. It is now considerably aggravated by the fear that the anti-corruption agencies will descend on them.

Declare the policy to develop the rural economy 

There is no scope to dispute the importance of the rural economy to the country or its importance to any Government that wants to stay in power. Therefore it is essential for the Government in ringing tones to declare its policy for the sustained development of the rural economy.

There will be a question of credibility. To mute this it may be wise to pursue a quick start that touches most rural areas. The weekly pola is a rural community institution. Build hundreds of covered markets for the weekly pola. This could be used as a community centre as well. So put a TV in every market that is built.

Volleyball is a popular rural area sport. It requires a relatively small area and the Government should build thousands of volleyball courts across the country. Opening these markets and volleyball courts will provide the politicians an opportunity to interact and spell out the wider commitment to the rural economy 

I and many others believe that the rural economy is the heartland of this country and to optimise the wellbeing of the people, the focus on development should be the rural economy.

This strategy does not appear to appeal to the Government. However it is hoped that the desire to remain in power will drive them to focus on the rural economy.